I’ve been there. Darren and I had a mountain of debt when we finished college. There were the student loans. The credit cards. The car loan.

And they all added up to a big old burden.

Our early married life was hard. We could never buy anything we wanted. We were stuck in this loop of wishing for better but getting nowhere.

If that sounds familiar to you, here’s the good news. You can pay off your debts. You can have a better life. Darren and I did it and so can you.

Acknowledge The Problem

You’ve probably heard that an alcoholic can’t be helped until they admit they have a problem. The same is true for those in chronic debt.

I don’t mean saying “I/We are in debt. I wish it would change.” Everyone does that, everyday of the week and nothing does change.

I mean like this.

You admit that debt is currently running your life.

You add up all the debts you have: the mortgage, the car loans, the credit cards, the store cards, the personal loans, etc. and put a number on how much you owe.

Then you say, “I am going to pay off these debts. I am going to have a better life and I am going to take action every single day to make the happen until it is done.”

You see, you have to do something to make your debts disappear. You can’t wish them away. If only it was so easy.

Action 1: Cut Your Spending

There are two things in life we spend money on:

Essentials. Gas for the vehicle we drive. Food for ourselves and our families. A roof over our heads. Etc.
Everything else.

And even within essentials, there are things we buy that are more expensive than we need. Such as Starbucks over instant coffee. Calvin Klein rather than J C Penney.

The single greatest action most of us can take to help pay off our debts is this: cut out the unnecessary spending and swap out expensive essentials for cheaper ones.

Examples:

Make food at home. Don’t eat out.
Cut your cable TV. Borrow movies from the local library instead for free.
Stop using your cell for calls. Use Skype or a free Internet service.
Cancel every subscription service or monthly payment that is not essential for your work.
Move into a smaller rented place with a lower rent.

None of these things will kill you. In fact, after a couple of weeks, you won’t even notice the economy anymore. Humans are funny. We adapt to our circumstances frighteningly quickly.

You may moan about instant coffee today… but after a month of drinking it, you’d miss it if you had to give it up. Trust me on this, it’s a real example from my life.

Action 2: Try Getting Some Help

I love the service called Pay Down My Debt. It forces you to save money. You install the app on your phone and connect it to your accounts. Then it deducts money every month (you set the amount you want to save each month) and stops you from spending it.

It also lets you work out how much money that can save you when the saved amount is allocated against one of your outstanding debts.

My recommendation? Get your credit cards paid down first. The interest they charge is scandalous. If you don’t clear the balance on a card every month, it’s a debt millstone dragging you to the bottom of the pond.

Banks love credit cards but you should only love them if you can make them work in your favor and not the bank’s.

Action 3: Make More Money

Darren’s in charge of this section of our blog but in real life, we’re both doing it. I find saving money really exciting but I like earning more money too.

You’ve probably seen Darren’s post on how to make extra money but if you haven’t? I recommend you give it a try.

There are simply loads of ways to make extra money. Our favorite, and we recommend it to everyone we meet, is starting a blog.

But there are many other ways to put some pennies in your purse and they can be a lot of fun. Have you seen my post on getting paid for your opinion?

I love doing surveys online, it’s easy, it’s fun and getting paid for giving my opinion beats sitting on my backside watching TV and paying for the privilege.

Find something you enjoy and learn to turn it into an extra income stream. Even if you can just find an hour a day and you only make $20 for that hour (and that’s not a lot), you’d have an extra $7,000 after a year! I bet that would pay off one of your credit cards, wouldn’t it?

Action 4: Pay Off The Most Expensive Debts First

This is so important that I have to repeat it. You must pay off your most expensive debt first. This is usually in this order:

Credit and store cards. High interest rates make these the worst debt you can have. Pay them off first. They cost you a fortune and that’s money you could spend on yourself instead.
Hire purchase agreements. These may even be worse than credit cards but normally they’re a little better. Get them gone as soon as the credit cards are done.
Personal loans and other forms of bank credit (but not mortgages). Rates are more reasonable on these items but they’re still 5-10% every year and they’re compounded. Once the cards are gone – get rid of these.
Student loans. A student loan is offered at a favorable rate of interest but the interest mounts up over the years. It costs less than most other forms of debt but it’s not free.
The mortgage. The mortgage is usually a low-cost loan and, in your budget, – it replaces rent. Better still your home will appreciate in value, so the costs over time are negligible. It’s nice to pay off the mortgage but it’s the last thing on the list.

Summary

So, there you have it. A 5-step plan to pay off your debts. It won’t happen overnight, of course, but it will happen if you stick to it. There’s nothing complicated about it. It just needs your commitment and hard work. Good luck. And if there’s something you are really struggling with in this area, let me know in the comments below.